The View from Goldman Sachs’ Private Wealth Unit

By Christiana Cefalu

This morning at Goldman Sachs’ (GS) New York headquarters, the investment strategy team from the bank’s private wealth management arm espoused the necessity and advantage of taking the long view.

In presenting their 2013 outlook, neatly packaged for their clients in a booklet titled “Over the Horizon,” the chief investment officer of the private bank, Sharmin Mossavar-Rahmani, said that this was the first time the group published 5-year prospective return numbers in addition to the usual 1-year expected return figures. Goldman Sachs expects a 6% return on the S&P 500 in 2013 and 6% annualized return over the next 5 years.

The bank’s ultra high net worth clients, Mossavar-Rahmani said, are “the only constituent that can afford to have a very long horizon. It’s their money, they’re not accountable to anybody. They don’t have an investment committee. They don’t have a board…this is an environment where they have a comparative advantage.” The bank was reiterating publicly the worldview that Penta first wrote about in our rare inside look at Goldman Sachs Private Wealth Management division.

But Mossavar-Rahmani also emphasized a need for clients to lower their expectations for returns, across all asset classes, in a low interest rate environment that’s unlikely to change anytime soon. Nobody likes to hear it, she acknowledged, “but we think it’s important that clients are more realistic and thoughtful about what we can expect over the next several years,” especially in relation to endowments and foundations.

So what do they recommend? Despite the “structural fault lines” in Europe, there are opportunities for investors in deeply discounted European stocks, says global equities specialist Matt Weir. These fault lines, he continued, are “not fatal.” The Goldman Sachs executives like large cap, multinational, recognizable brand names that you’d find in the Euro Stoxx 50 (SX5E) index, especially auto companies that have set up roots in emerging markets. The bank projects a 10% return on the index in 2013 and 14% annualized return over the next 5 years. (See also our recent cover story, “Europe on Sale”.)

U.S. banks, too, are attractively valued, says Brett Nelson, who specializes in U.S. equities. Of all the sectors, he contends, banks will have the fastest growing dividends this year, and “may well eclipse” the yield on the S&P 500 for the first time since the financial crisis began. He made the case that capital ratios at U.S. banks are “rapidly approaching Basel requirements,” allowing them to return capital to investors. Plus, Nelson added, there’s a “housing linkage.” That is, a great deal of bank collateral is backed by real estate, thus showing promise for banks as the housing market continues to recover. The group expects a 13% return on U.S. banks this year and 15% annualized return over the next 5 years.

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There are 3 comments

JANUARY 12, 2013 8:54 A.M.

GS is a joke wrote:

Whatever they tell you clients to invest in, do the opposite you "muppets!"

JANUARY 12, 2013 2:13 P.M.

Former GS employee wrote:

The article "A Rare Look" was riddled with false information, and was a decidedly uncritical view of Goldmans Private Wealth Management" business. Remember, GS is a broker dealer. They are a principal investor and a seller of their manufactured product. The conflicts are outrageous, and the proof is that the firm often puts their interests first. That is the reality. Taking advice from a "registered representative" (the legal occupation for their "Private Wealth Advisors" makes sense for the investor, YOU ARE WRONG.

JANUARY 13, 2013 2:21 P.M.

TiredOfFlippingTheBill wrote:

Caveat Emptor -- just like with everything else you purchase. You will never get "Money for nothing"

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About Penta

Written with Barron’s wit and often contrarian perspective, Penta provides the affluent with advice on how to navigate the world of wealth management, how to make savvy acquisitions ranging from vintage watches to second homes, and how to smartly manage family dynamics.

Richard C. Morais, Penta’s editor, was Forbes magazine’s longest serving foreign correspondent, has won multiple Business Journalist Of The Year Awards, and is the author of two novels: The Hundred-Foot Journey and Buddhaland, Brooklyn. Robert Milburn is Penta’s reporter, both online and for the quarterly magazine. He reviews everything from family office regulations to obscure jazz recordings.